Harvard, the richest U.S. university, is tapping the credit markets for as much as $1.1 billion at a time when it can secure lower funding costs after recent steep rate cuts made to address the coronavirus pandemic.

As much as $573 million in revenue bonds will be sold through a state agency and the proceeds will be used to refinance outstanding debt, Moody’s Investors Service said this week in a report. The ratings company said Harvard will also sell $500 million in taxable bonds for “eligible corporate purposes.”

The active financial management is designed to lock in lower rates, said Jason Newton, a Harvard spokesman.

The pandemic is upending U.S. higher education. Small colleges that are weak financially and dependent on tuition could be threatened with closing after campuses have been emptied of students with no firm return date. The wealthiest colleges may face endowment losses and expected declines in fund-raising.

Harvard, with a $40.9 billion endowment as of June 2019, last month forecast a decline in revenue and a slowdown in philanthropy due to the economic impact of the outbreak. It also said it would refund room and board for students ordered to leave campus and pay thousands of dining, custodial and administrative workers through May 28.

Ample Liquidity
“This is part of long-term planned debt activity,” Susan Shaffer, a vice president at Moody’s who specializes in higher education, said of Harvard’s bond sale. “Their liquidity is ample. They are very well managed and had already put into place, as most top-notch universities do, regular scenario analysis for potential recessionary conditions or other things that could cause operational stress. This could be smart timing because interest rates are low.”

Harvard is prepared to withstand a recession and the interruption of its operations, Chief Financial Officer Thomas Hollister said on March 23.

The endowment lost 27% of its value in the last big downturn over a decade ago, forcing the university to borrow money to shore up its cash position.

“The university is in a much better position than we were following the 2008 financial crisis with respect to liquidity and the capacity to withstand stress,” Hollister said in March.

The school has $5.2 billion in tax-exempt and taxable bonds outstanding, according to its most recent financial report.

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